Realistic Supply Chain Transparency

Supply chain risk mitigation
cannot now be achieved without transparency through Tier 2 overall and Tiers 3
to 5 on both core competency components and essential manufacturing
commodities.

Critical, core competency components
and essential manufacturing commodities must be identified more deeply as
either criminal interdiction, M&A buyout or natural calamity can put a
critical supplier offline.

The Golden Rule: Know Who makes
What Where How at Tier.

Realistic
chain transparency

ICG implemented this level of supply chain analysis in 2011 as its
standard for chain transparency and risk mitigation after evaluating eight
event series:

Supply chain risk mitigation
cannot now be achieved without transparency through Tier 2 overall and Tiers 3
to 5 on both core competency components and essential manufacturing
commodities. (The ultimate buyer is the Original Equipment Manufacturer (OEM)
or Tier 0.)

Critical, core competency
components and essential manufacturing commodities must be identified more
deeply as either criminal interdiction, M&A buyout or natural calamity can
put a critical supplier offline.

Highly critical, core competency
components and essential manufacturing commodities must be identified more
deeply as either Drug Trafficking Organization (DTO) interdiction, M&A
buyout or natural calamity can put a critical supplier offline, perhaps
permanently. The Chinese are examining US and EU supply chains for such
pickoffs.

OEM/top tier manufacturers err
in thinking that they have acceptable transparency with Tier 1 identification.
That is a false positive as Tier 1 is often (even very often) as much assembler
as manufacturer. Many strategic components or processes are at the Tier 2 to
Tier 5. Any and all are subject to penetration or interruption.

That superficial view is grossly
insufficient. Without greater transparency, Top tier firms cannot protect
themselves and their customers from strategic surprise and disruption.

The ICG supply chain Golden Rule: Know Who makes What Where, How at
Tier.

In the aftermath of the Asian
tsunami/earthquake, Toyota realized that it was vulnerable not knowing who made
what where at tier. The firm publicly stated that it would gain that chain
transparency. Two sources subsequently confirmed to ICG that Toyota had
achieved its goal. We must suspect that Nissan is not far behind.

Tier 2 is a minimum. Witness the
single Tier 2 bearing manufacturing that halted both Toyota and Nissan engine
production. ‘Where’ is not enough; you need what will likely happen at ‘where’
and what happens along the transit path (which can be as simple as the 4X price
rise of limes in Mexico due to criminal cartel regional road taxes).

The shift to local sourcing over
Low cost country (LCC) sourcing will bring a surge of new OEM/Tier 1 orders to
a supply base that can potentially overwhelm and consume existing suppliers’
current capacity, leaving upper tiers scrambling in a state of strategic
surprise.

All an industry needs for
disruption is for an entity to decide to become its sector Apple, a DTO
understands the effortless blackmail and extortion at hand for the taking, the
unanticipated impacts of a global sourcing realignment, or the next earth
sciences calamity.

More than one disruption can occur
simultaneously. There are frequent Ladder Effects where one failure compromising
or weakening an adjacent process or entity.

Specific concerns

If Mexican Drug Trafficking
Organizations (DTOs) fully engage the US/EU Tier 0/Tier 1 automotive industry
in Mexico in the manner which they have penetrated the Mexican automotive and mining
industries, there will be a spike in corporate and personal extortion and
kidnapping, as well as penetration and takeover of entire supply chains just a
Mexico is poised to expand its manufacturing footprint under a Backshoring
renaissance.

Backshoring has the potential to
create supply chain capacity chokepoints as appropriate productions are
repatriated.

CONUS (Continental US) and Mexican
suppliers will benefit whereas Canadian suppliers will see negative impacts.

Backshoring’s manufacturing
repatriation may begin to reduce one of the most massive involuntary
Intellectual Property (IP) transfers caused by Tier 0/OEM firms driving suppliers
to move design and manufacturing to the PRC.

OEMs and Tier 0 assembly plants
surrender 100% of their IP in a joint venture regardless of the actual partner
shares.

The scope of IP theft often
escapes attention as it is outside the normal purchasing mindshare, yet its
impacts are severe in both Direct and Indirect supply chains.